Where To Locate Your China Company

The other day I was talking with a U.S. based non-tech consumer company about their commencing retail operations in China. This is a new client and at some point in the conversation I started getting specific about what it takes to form a WFOE in Shanghai. The client stopped me and said that they were not yet certain about where they were going to base their China operations, though they are “certainly leaning to Shanghai.” I had inadvertently just assumed Shanghai because so many other companies in similar industries base their China operations in Shanghai and because were I the czar of this business, that would likely be where I would base it as well.

Our China lawyers often work with our clients and their consultants to help in determining where to locate, with our role being mostly legal. We might explain how their IP will be better protected in Shanghai then in Chengdu or how Beijing’s labor bureau tends to be very pro-employee or how Dalian has some strange rules for foreign businesses.

So I am always interested in which China city is good for what, in terms of foreign companies doing business in China. Technode just did an article, entitled Where Should You Base Your Startup In China? Five Expat Entrepreneurs Weigh In. And though this article focuses on start-ups, its information is relevant for any company trying to decide where to locate in China for the first time or even where to locate a branch. Each of the five entrepreneurs does a nice job of briefly setting out the pros and cons of their city, as follows, with my comment in italics:

Matt Conger of SeekPanda. SeekPanda chose Beijing because it “naturally attracts both sides of our network: business travelers and high-end language professionals. We evaluate our “pandas” with in-person meetings. No other city can match Beijing as a magnet for the talent we recruit.” He lists Beijing’s startup culture as a plus and “two centers of gravity for startups that are quite far apart” as a negative. I have to add one more obvious negative: pollution.  

Guan Wang of Amanda. Amanda chose Shanghai because it “targets a global audience, and Shanghai is an international hub where you can find target users, foreign talents, and potential partners across all industries. We are also located very close to universities, which makes it convenient to recruit fresh grads.” For Shanghai pluses, he lists that “Shanghai is a very charming and livable city, definitely the most western style offering on the mainland. This means attracting foreign talent is comparatively easy.” For Shanghai negatives, he mentions the high cost of living and how it is focused on finance and retail, not tech.

Mike Michelini of Unchained Apps. Unchained Apps chose Shenzhen because its border location “maximizes China’s large talent pool as well as the network of business development contacts in Hong Kong.” He lists China’s “relatively low cost of operations and living” as a plus, along with “lots of young entrepreneurs.” He mentions rapidly rising costs and competition for developers in the region as minuses.

Matt Vegh of Cloud Time. Cloud Time chose Chengdu because it “blends so many important factors together and does it so well, that it is hard to imagine a more suitable location for an entrepreneur. Urban and rural integration, tradition with modernity, business with leisure, industry with the environment and the list goes on.” He lists Chengdu pluses as “excellent transportation systems and infrastructure” and it being “much more affordable than eastern centers.” Chengdu minuses include it being “under-the-radar … a steep learning curve for foreign investors … and a lack of established tech savvy regional equity pools.” I would mention that Chengdu’s courts are less developed than Shanghai and Beijing’s.  

Nick Ramil of Enter China. Enter China chose Guangzhou because it is the “epicenter of the manufacturing province – Guangdong.” Ramil lists its “proximity to Hong Kong” and “a burgeoning expat community focused on trade” as its pluses. He lists it being a Cantonese speaking city as a minus, along with its “pollution and extreme weather.”

What do you think?

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We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.